| Sr. No | Partnership Firm | LLP |
|---|---|---|
| 1. | Indian Partnership Act, 1932 is applicable. | The Limited Liability Partnership Act, 2008 is applicable. |
| 2. | Registration is optional. | Registration is compulsory with ROC. |
| 3. | It is not a Body Corporate. | It is a Body Corporate. |
| 4. | It is created by an Agreement. | It is created by Law. |
| 5. | Partnership is not a Separate Legal Entity. | It is a Separate Legal Entity. |
| 6. | It doesn’t have perpetual succession. | It has perpetual succession. |
| 7. | Minimum 2 and maximum 50 partners are required for formation of Partnership. | Minimum 2 partners are required but no maximum limit. |
| 8. | Partners are severally and jointly liable for actions of other partners and the firm and their liability extends to personal assets mean to say that unlimited liability of partners. | Partners/members’ liability is Limited to the extent of their contribution towards LLP except in case of intentional fraud or wrongful act of omission or commission by a partner. |
| 9. | Partners are the agents of each other and of the firm. | Partners are agents of the firm only and not of other partners |
| 10. | Firm cannot own any assets. The partners own the assets of the firm. | The LLP can own assets. |
Pooja Nahar
Share Capital & its types
Finance is the lifeblood of a company, without it company cannot survive. Finance can be raised by issuing shares and debentures. In fact, shares and debentures are financial instruments which help in arranging funds for the company.
Share Capital– share includes stock in the share capital of a company.
The share capital of a company is divided into small units having a certain face value. Each such unit is termed as share.
When these shares (either in part or whole) are allotted to various persons, on the date of allotment, they become shareholders of the company.
Types of Share Capital:- Broadly, there are two types of share capital of a company limited by shares:
- Preference share capital :-
preference share capital as instruments which have preferential right to dividend payment (absolute/fixed or ad-valorem/ %) and preferential repayment during winding up of the company.
Preference shareholders enjoy preferential rights in the matter of :
(a) Payment of dividend &
(b) Repayment of capital
2. Equity share capital :-
means all share capital which is not preference share capital. It indicates ownership in a company.
(a) Equity shareholders have voting rights.
(b) Differential rights to dividend.
Differences between Tax Planning, Tax Avoidance and Tax Evasion
| Tax Planning | Tax Avoidance | Tax Evasion |
| it is method of reduce taxes by using maximum benefit of deductions, exemptions, rebates etc. for minimizing tax liability. | It is method of reduce taxes by finding out loopholes in the law. | It is method of reduce taxes by dishonest means. |
| It is fully within the framework of law. | It complies with the legal language of the law but not the spirit of the law | It is clearly violation of law and unethical in nature. |
| This concept is accepted by the Judiciary in India. | This concept can be considered heinous to tax evasion. Government brings amendment to curb such practices and to plug the loopholes | It is wholly illegal & prohibited. |
| It is within the language and spirit of law. So, penalty and prosecution can be. | penalties and prosecution can be against the person engaged in it. | stringent penalties and prosecution can be against the person engaged in it. |
| It is futuristic in nature, i.e., it aims to minimize the tax liability of the upcoming years. | It is also futuristic in nature. | It aims to evade the payment of tax after the tax has arisen. |
Tax Planning, Tax Evasion and Tax Avoidance OR Methods of reducing taxes-
Tax Planning :- is an arrangement in such a way that assessee takes advantage of all tax exemptions, deductions, concessions, rebates, allowances and other reliefs or benefits permitted under the Act without violating the legal provisions so that the burden of taxation on the assessee is reduced to the minimum.
Tax Evasion :- it refers to the reduction of tax liability by illegal or fraudulent means.
In this case, taxpayer tries to reduce tax liability and pays less tax than he is legally obligated to pay by hiding income or information from the tax authorities.
An assessee guilty of tax evasion is punishable under the relevant laws with fines and penalties ranging from 100% to 300% of tax evaded.
Examples–
• Misrepresentation or suppression of facts.
• Fail to record investments in accounting records. Recording of any false entry in books of account.
• Don’t have record of any receipt in books of account.
• Failure to report any international transaction.
- omission of material facts in assessments.
- using fake documents to claim deductions/exemptions.
Tax Avoidance :- by using variety of methods or technically satisfying the requirement of law, to eliminate or reduce tax burden.
Examples–
- Transfer money to their parents who are not earning up to Rs. 2.5 lakhs, if they are below 60 years of age, up to Rs. 3 lakhs in case the parents are above 60 years of age, and up to Rs. 5 lakhs in case the parents are above 80 years of age.
- Taking loans from relatives and friends since gift tax does not apply on the same and the loan may be paid back with a nominal interest rate.
What is Company & its Features
The word company is derived from the Latin word ‘com’ i.e. with or together and ‘panis’ i.e. bread. Originally it refers to an association of persons or merchant men discussing matters and taking food together.
However, as per companies Act, 2013 company which is formed and incorporated under the Companies Act, 2013 or any of the previous company laws.
According to Lord Justice Hanay, “company as “an artificial person created by law with a perpetual succession and a common seal”.
Features or Characteristics of a Company :-
- Incorporated Association: A company comes into existence through the operation of law.
- Perpetual Existence: company has its own existence doesn’t depend on its members, it will be continues in existence despite the death, insolvency or change of members.
- Separate Legal Entity: company has its own separate legal entity and is not affected by changes in its membership.
- Common Seal: Company cannot sign the documents. Therefore common seal is affixed on all documents by the person authorize to do so and puts his signature, but now, the use of common seal has been made optional.
- Limited Liability: The liability of shareholders of a company is limited to the extent he has agreed to pay to the company.
- Not a citizen: A company is not a citizen as a natural person because it is created by law.
- Transferability of Shares: shares are transferable by its members except in case of a private limited company, which may have certain restrictions on such transferability.
- Maintenance of Books: A limited company is required by law to maintain books of account.
- Periodic Audit: A company has to get its accounts periodically audited through the chartered accountants.
- Right of Access to Information: The shareholders of a company have right to inspect its books of account and to seek information.
CONTINGENT ASSETS AND LIABILITES
Contingent Assets :- a possible asset arises from past events and their existence will be confirmed by occurrence or nonoccurrence of one or more uncertain future events. For example, a claim that an enterprise is pursuing through legal process, where the outcome is uncertain, is a contingent asset.
Contingent Liabilities :- a possible obligation arising from past events and may arise in future depending on the occurrence or non-occurrence of one or more uncertain future events.
Capital and Revenue Expenditures
capital expenditure -expenditure incur to increase revenue earning capacity of a business over more than one accounting period, the benefits arising out of capital expenditure last for more than one accounting period. Example- acquisition of tangible or intangible fixed assets.
Revenue expense is incurred to generate revenue for a particular accounting period, revenue expenses expire in the same accounting period. Example- cost of goods sold, salaries, rent, etc.
CAPITAL AND REVENUE RECEIPTS:-
Capital Receipts : receipts which are not revenue in nature are capital receipts e.g. receipts from sale of fixed assets or investments, secured or unsecured loans, owners’ contributions etc.
Revenue Receipts : receipts which are obtained in course of normal business activities are revenue receipts e.g. receipts from sale of goods or services, interest income etc.
Financial Accounting/Cost Accounting/Management Accounting
financial accounting provide financial information (profitability & financial position-P&L A/c or Statement of P&L and Balance Sheet).
Cost Accounting determines the total cost of production.
Management Accounting :-
for day to day operations & policy, management requires to make strategy/planning /policy/controlling/decision making. Management has to take decision, for this management take help of management accounting.
Management Accountant collects data of financial accounting & cost accounting by using all techniques (Accounting/Statistical & Mathematical) analysis/interpret/present this data to management for effective planning, decision making & control managerial functions. Also known as accounting for management.
Definition :- according to Anglo-American of Productivity , management accounting is the presentation of accounting information in such a way as to assist management in the creation of policy and in the day to day operations of an undertaking.
Management Accounting is concerned with accounting information that is useful to management.
Characteristics:-
- It lays more emphasis on future-management accounting is concerned with future that helps management in forecasting/planning.
- selective nature- it provides relevant information to management.
- It establishes cause and effect relationship-find out the reasons of decrease of profits and to analyze the effects of various decisions i.e. pricing promotion, cost control, sales mix etc on profitability.
- It provides information not the decision- it provides only data for decision making.
- Use of special Techniques- management accounting uses various techniques i.e. cash flow/fund flow statement, ratio analysis, budgeting control, standard costing, marginal costing etc.
- No specific formats- management accounting doesn’t provide information in prescribed format/performa.
- No specific Rules & Conventions-no specific rules arre followed.
- Optional-no statutory obligation.
Depreciation of Currency Vs. Devaluation of Currency
Depreciation of Currency: means decrease in the value of country’s currency in comparison to other country’s currency due to market forces (Demand & Supply).
In Floating/Flexible Exchange Rate System :- if $ = 70 and if it increases from 70 to 74. Here, the value of currency of India will be decreased or price of foreign currency will be increased. [No Govt./Central Bank’s action].
Devaluation of Currency :- means decrease in the value of country’s currency (India) by monetary authority (Central Bank). [Govt. Intervention].
In Fixed Exchange Rate Regime: if $ = 70 and if it increases from 70 to 74. Here, export is cheap and import is expensive.
Appreciation of Currency Vs. Revaluation of Currency
Appreciation of currency means increase in the value of one country’s currency in comparison to other country’s currency due to market forces (demand & supply).
Example:-
In floating/Flexible Exchange Rate Regime:- 1$ = 70, if $ rate decreases from 70 to 60. Here, value of India’s currency will be increased or price of foreign exchange will be decreased.
Revaluation of Currency :- means increase in the value of one country’s currency in comparison to other country’s currency due to Government intervention or by monetary authority (Central bank).
In fixed/Pegged Exchange Rate Regime :- 1$ = 70, if $ rate decreases from 70 to 60. Here, the value of India’s currency will be increased or price of foreign exchange will be decreased.
Import becomes cheap.